TAX UPDATE SUMMER 2018

GEORGE JOHNSON & COMPANY

SUMMER 2018


 

Dear Clients and Friends,

Welcome to our 2018 Summer Tax Update! As the summer months continue to roll by, we wanted to share some important tax planning information including the new procedural guidance for implementing ASC 606; eliminating double tax bias for C Corporations; and Section 965 transition tax.
Below in our Spotlight segment, you can read about our team members’ tenures with the firm. We recognize how important it is to have a team of hard-working individuals and we are grateful for the services they provide each and every one of our clients. Also below in our Community section, we have shared some photos from our Annual Client Seminars. If you are interested in receiving information from our seminars, contact Rodelyn Frijas at rfrijas@gjc-cpa.com. We would be happy to share. Following the seminars, the speakers stayed to train our accountants on reporting updates as it relates to the industries we service. The continued educational programs ensure that we use the most current standards and practices.
We hope you enjoy this Tax Update edition of the GJC Advisor. As always, if you have any questions, feel free to contact us.
Sincerely,
George Johnson & Company
New Procedural Guidance for Implementing ASC 606 – Related Tax Accounting Method Changes
Summary
On May 10, 2018, the IRS released Rev. Proc. 2018-29, which provides procedural guidance for the implementation of tax accounting method changes related to taxpayers’ adoption of the new revenue recognition standard for financial reporting purposes under ASC 606.  Designed to reduce compliance costs, burden, and administrative complexity, Rev. Proc. 2018-29 provides a brand new automatic consent method change under which a taxpayer that has adopted the new standard may make a corresponding change in its method of accounting for federal income tax purposes to identify performance obligations, to allocate transaction price to performance obligations, and/or to consider performance obligations satisfied, provided the new method of accounting is otherwise permissible under the Internal Revenue Code.
 
SECTION 1202 – Eliminating the Double Tax Bias for Small C Corporations
 
Summary
Section 1202 can eliminate the double tax burden on C corporations entirely with proper tax planning.  But buyer beware – there are hurdles, limitations, and traps galore to navigate for our clients.  Section 1202 allows certain non-corporate taxpayers to exclude 50 to 100 percent of gain from the sale of “qualified small business stock” (QSBS) held for at least five years.  This provision was designed to provide “relief for investors who risk their funds in . . . small businesses, many of which have difficulty attracting equity financing.”  H.R. Rep. No. 103-111 (1993).  QSBS includes certain stock issued after August 10, 1993, in a domestic C corporation conducting a qualified active business.  Generally, the gain exclusion is 50, 75, and 100 percent for QSBS acquired after August 10, 1993, February 17, 2009, and September 27, 2010, respectively.  In addition, to the extent such gain is excluded from gross income, it is now also exempt from both the individual AMT and the net investment income tax.
 
IRS Addresses Frequently Asked Questions Regarding Credit Directive
Summary
The FAQs address questions asked by taxpayers who either have adopted the Directive or are considering doing so.

The questions relate to a host of topics, some of which are discussed below under “Detail.” They include: Accounting Standards Codification (ASC) 730; certain software development activities; certified audited financial statements; the Directive and its Appendices; the ways in which the Directive interacts with other IRC sections; substantiation; audit steps under the Directive; and penalties.

The FAQs explain that the Directive does not “determine as a matter of law” that ASC 730 research activities are Research-Credit qualified activities. Instead, its purpose is only to improve the efficiency of Research-Credit examinations, not to establish legally conclusive presumptions.

For further guidance, taxpayers should review the Directive itself, along with the Practice Units recently released by the IRS.  

IRS Offers Limited Relief to Certain Taxpayers Subject to the Section 965 Transition Tax

 
Summary
On June 4, 2018, the Internal Revenue Service (IRS) announced that it will provide penalty relief to certain taxpayers subject to the Section 965 transition tax, and provided additional information for individuals subject to the Section 965 transition tax regarding the due date for relevant elections.

Section 965 generally imposes a transition tax on untaxed foreign earnings of certain foreign corporations owned by U.S. shareholders by deeming those earnings to be repatriated. Taxpayers may elect to pay the Section 965 transition tax in installments over an eight-year period if the taxpayer files a timely election under Section 965(h).

The relief and additional guidance was detailed in three new questions and answers (Q&A) posted on the IRS’s updated Questions and Answers about Reporting Related to Section 965 on 2017 Tax Returns (the FAQ).

SPOTLIGHT

Join us in congratulating Michael Nicholas and Gloria Zhao on their tenure with GJC! 

We are happy to share that our Quality Control Principal, Michael Nicholas is celebrating 32 years of service with George Johnson & Company. He joined GJC in 1986 and has been a Principal since 1994. Aside from being responsible for managing all facets of audits, reviews, other attestation engagements, and tax return preparation services for our clients, Mike also maintains our quality control standards.  We are fortunate to have him on our team!

This year also marks Gloria Zhao’s 16th year with us. Gloria started in 2002 as a staff accountant and has progressed to Principal in 2007. Among many responsibilities, including managing all facets of audits and reviews for many of our major clients, Gloria also serves as our Certified Fraud Examiner. We are proud to have Gloria on our team!
We appreciate the selfless service Mike and Gloria have provided for so many years. It is the loyalty, hard work and expertise that have helped GJC achieve its present stature.
Congratulations to Mike and Gloria!

COMMUNITY

Annual Client Seminars
Earlier this year, GJC hosted its annual client seminars at the historic DAC (Detroit Athletic Club).

On February 27th, our keynote speakers from BDO, Luanne MacNichol of Grand Rapids, and Kim Flett out of Akron, Ohio, shared the podium and addressed hot topics in the Employee Benefit Plan industry including: impacts of tax reform on compensation and benefits issues and important information regarding employee benefits; Affordable Care Act updates; cybersecurity; and Department of Labor and Internal Revenue Service investigations – current trends and best practices for sponsors of benefit plans.

Luanne MacNichol – Director, Employee Benefit Plan Audit Practice, BDO USA LLP

Kim Flett – Compensation & Benefits Services Managing Director, BDO USA LLP

Lee Klumpp – National Assurance Partner, Nonprofit & Government Industries, BDO USA LLP

The Nonprofit Organizations & Foundations Seminar was later held on May 22nd. Our keynote speaker was the highly accredited Lee Klumpp, National Assurance Partner – Nonprofit & Government for BDO, out of the Washington, D.C. office. Lee discussed the latest trends and topics including tax reform and current accounting developments affecting the nonprofit industry.

With various changes occurring in the industry, we modified the format of the seminar by supplementing with two additional guest speakers. Following Lee’s presentation, Attorney Jeremy Cnudde, from KempKlein, spoke about Mergers & Acquisitions and Creating Value for Nonprofits. John Caldwell, Investment Specialist and Executive Director of J.P. Morgan Private Bank, discussed Key Principles of Effective Governance & Investment Management and Investment Policy Statements for the Current Environment.

Jeremy Cnudde – Attorney/Shareholder, KempKlein Law Firm

Based on the seminar feedback, we are pleased to announce that the attendees were overall satisfied with the new format! Stay tuned for future seminars!

If you are interested in receiving information from the seminars, or if you would like to be added to our events guest lists, please contact Rodelyn Frijas at rfrijas@gjc-cpa.com.